Stop Loss is one of the most important order types in trading.
This tutorial explains what a stop loss order is, how to implement it, and answers some frequently asked questions at the end.
After reading this tutorial, you will know everything you need to know about entering stop loss.
What is a stop loss order?
Every trading platform I have seen has a stop loss feature.
Some are easier to use, but the basic functionality is the same.
A stop loss order is a type of order used by traders to limit losses on losing trades or lock profits on winning trades.
More specifically, a stop loss is a pending order that will only be executed if the price hits the stop loss level.
A pending order is an order that remains on the broker’s server until the order’s conditions are met. For Stop Loss, the condition is that the price hits the Stop Loss price.
Once the price reaches the stop loss price, it will turn into a market order. This means that the trade will be executed at the next available opportunity.
This means that there must be someone in the market willing to take the other side of your trade.
In very large (liquid) markets, trades are usually filled very quickly at the price you set. Examples of markets are large-cap stocks, forex, and large-cap cryptos like Bitcoin.
However, in smaller (illiquid) markets, the price at which the trade is ultimately filled may differ from the price at which the stop loss is set. This is called slippage. Commonly illiquid markets include options, micro-cap stocks, and altcoins.
If you’re trading in a less liquid market, see if you can enter a stop loss that turns into a limit order instead of a market order.
A stop limit allows you to set a limit price so you don’t lose money if available trades are worse than your limit price.
Not all trading platforms offer stop limit orders, so be aware of possible slippage before placing a stop loss order.
Traders usually enter a stop loss as soon as they open a trade.
How to set a stop loss to limit losses
The most common use of stop loss orders is to do exactly what the name suggests.
It limits the losses you have in trading.
In the chart above, the red line at the bottom of the chart represents a good place to enter a long trade stop loss order.
The trade opens at 0.63264 with a stop loss of 0.61617.
Long trades are closed if the price breaks below 0.61617.
Stop Loss orders allow traders to automatically exit a trade at a predetermined loss amount, thus protecting their remaining trading capital.
Many traders use a percentage loss stop loss with only X% risk per trade. A typical amount of risk per trade is 1%.
If you risk 1% on a single trade, you will lose all your money if you fail 100 times in a row.
Even if it’s a guess, I don’t think I’ll get it wrong 100 times in a row.
Therefore, using a stop loss will protect your capital when it goes wrong so it will be available when it is right.
How to use stop loss to protect your profit
You can also use a stop loss to protect your profit.
Let’s look at the same trade above. But this time, the price turned into profit.
The blue line is the opening price and the red line is the new stop loss level.
To protect your profit, you can raise your stop loss to 0.63634 to secure a profit of 37.4 pips on your trade.
Securing profits by moving your stop loss is a great way to ensure that your trades are profitable, but it also gives you the opportunity to do so. moreover Money if the market locks into a strong trend.
No matter what happens, you can rest assured that your profit is guaranteed.
How to Place a Stop Loss Order on Popular Trading Platforms
Setting a stop loss order is usually easy.
All trading platforms allow you to set a stop loss when opening a trade. After entering a trade, you can edit your stop loss or even enter it if you forgot it.
I will give some examples from various trading platforms so that you can see the process in action.
how to set stop loss in metatrader
MetaTrader’s order entry screen has a Stop Loss field just below the Volume field.
A quick way to enter the stop loss price is to first click the up or down arrow next to the stop loss price.
This will automatically enter a price close to the current price. You can then manually edit the price to set your stop loss.
This method saves time and is especially useful for day traders who need to enter orders quickly.
This process is almost identical in MetaTrader 5. Read this tutorial if you want to learn how to set a stop loss and take profits in MT5.
How to set a stop loss on TradingView
TradingView has number one The stop loss screen I’ve ever seen.
You can set your stop loss at pips/dollars, a specific price, or percentage risk.
To enter an order, right click on any chart and click:
trade > Create new order…
An order entry box will appear.Check the box next to stop loss Enter your stop loss in your preferred format.
at the end, buy Also sell Press the button to confirm your order.
How to set a stop loss in thinkorswim
TD Ameritrade There are several different trading platforms you can use, but I’ll give you the simplest thinkorswim example.
Entering a stop loss on this platform is quite complicated, but easy once you know how.
Click while entering the entry order. advanced order > First trigger OCO.
Once the trade is filled, this goes into the Stop Loss order.
Watch this video to get a complete tutorial on how the platform works.
It shows an older version of the software, but the basic principles are the same.
Yeah I don’t know why they make it so complicated.
But now you know how to do it.
how to set stop loss on binance
The process of setting a stop loss order in cryptocurrencies varies greatly between exchanges.
In this example, we will show you how to use one of the most popular exchanges, Binance.
On Binance, stop limit function.
An example of this is shown on Binance, but please check with your specific exchange on how to set a stop loss on your trading platform or exchange.
Here is a complete tutorial on how to set a stop loss on the Binance trading platform.
Where should I place my stop loss?
Now that you know how to set your stop loss, this is the next question new traders ask.
Knowing where to place your stop loss takes practice.
We want to put it in a place that is not caused by normal market fluctuations.
However, it should also be set as tight as possible to get the maximum profit from trading.
It’s a balancing act.
Read this tutorial on where to place your stop loss.
Should I move my stop loss?
Moving the stop loss to increase risk will result in a larger loss than originally planned.
It’s a recipe for disaster.
There is only one situation where you need to move your stop loss…if you want to secure a profit.
How to do this is beyond the scope of this tutorial, but you can learn how to track stop losses here.
If you track the stop loss, you might end up making more profit than you expected because you’re letting the winners run and cut your losses short.
Will the broker look for your stop loss?
A legit and regulated broker will not look for your stop loss.
Who knows what a risky and unregulated broker will do.
That is why it is important to trade with a reputable broker.
But if you are trading with a reputable broker and feel that your stop loss has been removed, this is probably the reason.
Understanding how to set a stop loss order in one market will help you understand how to do it in other markets, even if the process is not exactly the same.
Using a stop loss in your trades is the best way to limit your risk and secure your profits. If you are not using stop loss, you should consider using it.
To be fair, not all professional traders use stop loss.
There are also some trading strategies that perform better when not using stop losses.
But the vast majority of traders and trading strategies perform better When stop loss.
Backtest to find the best way to place stop loss orders.